1. Simple Understanding (Easy Explanation)
Higher leverage = Less margin = Easier to be liquidated
✅ Leverage magnifies trading size but also amplifies risk.
❌ If the market moves against you and losses eat up your margin, liquidation may occur!
2. Why does higher leverage lead to faster liquidation?
1:50 leverage: High margin (large buffer), can withstand about 200 pips loss
1:200 leverage: Medium margin, around 50 pips loss may be dangerous
1:500 leverage: Low margin (small buffer), 20 pips loss is near liquidation
📌 Conclusion: Higher leverage = lower margin required, but also smaller tolerance for adverse moves.
3. Core Mechanism (Professional Explanation)
Liquidation = Automatic closure when margin level is too low
Margin Level = Equity ÷ Used Margin × 100%
If ≤ 10% (AFT standard), forced liquidation occurs
✅ Under high leverage:
Less margin required, equity decreases faster
The same loss consumes a larger percentage
Liquidation triggers more quickly!
4. Example
Account balance: $1,000, trading 1 lot of gold (XAU/USD)
1:100 leverage: Margin required ≈ $1,800 (insufficient, cannot open)
1:200 leverage: Margin required ≈ $900, can withstand about 100 pips loss
1:500 leverage: Margin required ≈ $360, can withstand about 40 pips loss
💥 Gold often moves 40 pips; with high leverage and no stop-loss or risk control, liquidation is very likely!